You may be able to terminate your Sales and Purchase Agreement (SPA) if there is a specific clause that allows you to do so. Do note that you might still have to pay for your housing loan if you cancel your SPA too late!
After many months of searching, you finally find the home of your dreams. You go to meet the property developer, put a downpayment on the property, and sign the Sales and Purchase Agreement (SPA). This agreement details all the rights and obligations of the developer and you, as the buyer. So it’s a very important piece of document in the home purchasing process.
Unfortunately, a few weeks after signing it, you lose your job and realize you are now unable to pay for your new house. You decide to forgo the whole idea of being a homeowner and proceed to meet your developer to cancel the deal.
But they tell you that you’re not allowed to cancel the SPA and that you are already bound by it. So in such a situation, what can you do?
An SPA is a legal contract
As we said, the SPA is a pretty important document. In fact, it’s a contract that is indeed legally binding. Based on contract law, once you sign that piece of paper, you cannot opt-out, unless the contract allows for it, or some special circumstances. The contract only ends once both parties have completed their part of the deal. So, if one party abandons it halfway, the other party can take action against them.
But like most things, there’s an exception to this as well. There are ways that you can get out of a contract if you really need to. And this brings us to our next point…
You can cancel a house purchase, but it’s not easy
The Housing Development (Control and Licensing) Act 1966 or HDA is a set of laws that lay down the rights of homebuyers and property developer. Section 8A of the HDA specifically talks about how a homebuyer or developer can cancel a Sales and Purchase Agreement. It’s a pretty long section, but basically, you can cancel the SPA if:
- you apply for a termination to the Minister of Housing and it is approved
- the cancellation is done within 6 months of signing the SPA
- at least 75% of the homebuyers agree to terminate the SPA
This sounds simple, but there’s a reason why we said it’s difficult to terminate the SPA — the conditions above only apply in cases where the entire housing project is going to be scrapped. An example would be if your home was under construction, but the whole construction had to be halted due to a mishap.
Say for instance, an entire condo had collapsed due to heavy rain and nobody knew when the project would continue. Since it is uncertain if the home buyers would even get their homes, all the housing contracts could be cancelled, but only if the homebuyers and the developer agreed to it. For that to happen, you and your developer will have to enter a termination and settlement agreement. Basically, it means that you both agree to end the housing contract and when that happens, all legal ties between you and the property developer will be cut.
Other scenarios would be if the property developer is blacklisted, or is involved in some fraudulent acts. According to the HDA, if you have purchased a house from a developer who has failed to carry out construction for at least 6 continuous months, then you would be allowed to terminate the contract provided that you fulfil two requirements:
i) obtain a written consent from the end financier (the bank that gave you the home loan)
ii) The Housing Controller must certify that the developer has refused to carry out construction for at least 6 months.
But what if nothing major like this happens, and you’re just an individual home buyer who doesn’t want the house anymore?
Check if your SPA’s clause allows for a cancellation
For individual terminations, you need to check your SPA to see if there is a specific clause that allows for terminations. Most SPAs usually have one of these, stating that home buyers would need to pay a penalty if they want out – the penalty is usually 10% of the property purchase price.
Whether or not you need to give a valid reason for terminating the agreement also depends on other terms in your SPA. If your developer needs a valid reason and you can’t provide them with one, they can choose not to let you go. When you decide to terminate your agreement is also super important. If it’s too far down the line and your house is almost completed, the property developer can reject your attempts to end the contract.
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Housing loan agreement signed with bank
In case of financial difficulties, it’s not just your developer you need to negotiate with if you can’t afford the house anymore. There’s also a third party – the bank that gives you the housing loan. Even if you successfully manage to end the housing agreement, the bank can still demand monthly instalment payments from you, especially if it has made full payment to the developer.
The role of your bank in this whole picture is just that of a financier. As they did not sign the SPA and only agreed to give you a housing loan, you will have to pay what is owed to them. Thus, it’s vital that you terminate the SPA as early as possible if you need to, before the bank has paid the developer in full.
Can the property developer terminate the SPA instead?
The laws on cancelling this contract will be the same, regardless of whether it’s the buyer or the developer cancelling it. The point is that one party is leaving the contract halfway. It’s worth mentioning that it can be harder for the developer to get out of the contract compared to the buyer, as there has to be a very good reason why they’re not building your house anymore. They can be made to pay compensation to you for that as well, especially if they just abandon the property altogether.
But if the property developer wants to cancel the SPA and you don’t, you can take legal action against the developer, of course.
Before buying your property, it’s important to check all the terms and conditions of the sales and purchase agreement before signing it. The good news is, when you’re signing the SPA, there’ll be a lawyer assigned to you by the developer, or you can bring your own lawyer. So if you don’t understand anything in the agreement, make sure to ask them for clarification first.
*This article was repurposed from “In Malaysia, can you buy a house and then cancel the purchase after that?“, first published on Asklegal.my|